Breakout

Stock Rally Resumes Despite Moody’s Massive Downgrade Threat

Breakout

Bank stocks (^BKX) and the broader market are on the rise again today, in spite of a threatened downgrade by Moody's (MCO) on more than 100 global and European financials (EUFN). It's just the latest evidence that the ratings agencies may be losing their credibility once and for all.

"The ratings agencies have lost their luster in terms of their market moving abilities," says Ted Parrish, portfolio manager at Henssler Financial. "They missed the whole financial crisis of 2008, so who's going to trust them now?"

Parrish says this latest effort is more about the rating agency making itself relevant than it is about warning about new problems facing the financial sector. Regardless, he has avoided the sector, despite its sharp rebound this year.

"I have no bank exposure," he says. "The problems are definitely not over for the banks. I mean, do you really think that the banks are healthy again? I don't think so. I don't think we can trust what's on their books."

While Standard & Poor's cut the U.S. government's AAA rating last August, Moody's and Fitch have so far only warned on the matter. Even if another round of downgrades become a reality, many investors, including Parrish, believe the impact will be small.

"It's possible if the knuckleheads in Washington don't get together and come up with some solution to cut the spending," he says, adding that it would have more of a psychological impact on investors and voters rather than a financial effect that would actually raise the country's borrowing costs.

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